Operations management - inventory management
I'm probably overcomplicating the solution to this problem, but I'm stuck.
Millennium Liquors is a wholesale of sparking wines. Their most popular product is the French Bete Noire 1989. Weekly demand is 45 cases. Assume demand occurs over 50 weeks per year. The wine is shipped directly from France. Millennium's annual cost of capital is 15 percent, which also includes other inventory-related costs. Below are some other data on the costs of shipping and handling. These costs include the usual ordering and handling costs, plus the cost of refrigeration, which includes a fixed component (mainly depreciation of the cooling equipment) and a variable component that depends on the number of cases in inventory.
• Cost per case: $120
• Shipping cost (for any size shipment): $290
• Cost of labor to place and process an order:$10
• Cost of labor to place cases into warehouse:$2/case
• Cost of labor to pick cases when sold: $2/case
• Fixed cost for refrigeration: $75/week
• Variable cost for refrigeration: $3/case/week
a) Calculate the weekly holding cost for one case of wine.
b) Use the EOQ model to find the number of cases per order and the average number of orders per year.
c) Currently Orders are placed by calling France an then following up with a letter. Millennium and its suppliers may switch to a simple ordering system using the Internet. The new system will require less labor. What would be the impact of this system on ordering pattern?
Here is just a sample of what you'll find in this solution:
"This is the Economic Order Quantity. Please note that we have removed the cost of labor to place and process an order and the economic order quantity has gone down and so..."
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